NEW MEXICO HIGHLANDS UNIVERSITY FOUNDATION (A COMPONENT UNIT OF NEW MEXICO HIGHLANDS UNIVERSITY) FINANCIAL STATEMENTS

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1 NEW MEXICO HIGHLANDS UNIVERSITY FOUNDATION (A COMPONENT UNIT OF NEW MEXICO HIGHLANDS UNIVERSITY) FINANCIAL STATEMENTS JUNE 30, 2014

2 TABLE OF CONTENTS NEW MEXICO HIGHLANDS UNIVERSITY FOUNDATION OFFICIAL ROSTER... 1 REPORT OF INDEPENDENT AUDITORS... 2 MANAGEMENT'S DISCUSSION AND ANALYSIS... 5 FINANCIAL STATEMENTS Statement of Net Position... 9 Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Financial Statements SUPPLEMENTARY INFORMATION Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Summary Schedule of Prior Findings Schedule of Findings and Responses Exit Conference... 24

3 NEW MEXICO HIGHLANDS UNIVERSITY FOUNDATION Official Roster Board of Directors Dr. G. Doyle Daves, Jr., President/Public Director Dr. James Fries, Chairman of the Board/Ex Officio Ms. Tina M. Cordova, First Vice President/Public Director Mrs. Linda Mitchell Davis, Second Vice President/Public Director Mr. Jay D. Moore, Second Vice President/Public Director Mr. Ray Litherland, Treasurer/Public Director Mr. Jim Franken, Public Director Mr. William E. Garcia, Public Director Dr. Melvyn Huckaby, Public Director Mr. John Lesselyong, Public Director Mr. Greg W. Levenson, Public Director Dr. Carlotta E. Lockmiller, Public Director Mr. Antonio Lopez, Public Director Dr. Eileen Madrid, Public Director Dr. Joseph McCaffrey, Public Director Mr. Joseph Montoya, Public Director Mr. Charles J. Muchmore, Public Director Dr. Barbara A. Perea Casey, Public Director Dr. D. Pauline Rindone, Public Director Ms. Ivy M. Romero, Public Director, Alumni Association President Mr. Ernesto J. Salazar, Public Director Mr. Ernest T. Sanchez, Public Director Mr. Leveo V. Sanchez, Ex officio Director/Emeritus Director Mr. Pablo Sedillo, Public Director Mr. Joe H. Staley, Jr., Public Director Ms. Editha Bartley, Emeritus Director Mr. Carlos Lucero, Emeritus Director Mr. Frank A. Marchi, Emeritus Director Mr. Ernie Quintana, Emeritus Director Mr. Matias Zamora, Emeritus Director Administrative Personnel Mr. Will Wootton, Executive Director Mr. James Mandarino, Alumni Director Darlene Chavez, Development Finance Officer 1

4 Report of Independent Auditors Board of Directors New Mexico Highlands University Foundation And Mr. Hector Balderas, New Mexico State Auditor Report on the Financial Statements We have audited the accompanying financial statements of the business type activities of New Mexico Highlands University Foundation (the Foundation ) (a component unit of New Mexico Highlands University) as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Foundation s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2

5 Board of Directors New Mexico Highlands University Foundation And Mr. Hector Balderas, New Mexico State Auditor Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business type activities of the Foundation as of June 30, 2014, and the respective changes in financial position and, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and on pages 5 through 8 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 3

6 Board of Directors New Mexico Highlands University Foundation And Mr. Hector Balderas, New Mexico State Auditor Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 3, 2014 on our consideration of the Foundation's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Foundation's internal control over financial reporting and compliance. Albuquerque, New Mexico November 3,

7 MANAGEMENT S DISCUSSION AND ANALYSIS New Mexico Highlands University Foundation (Foundation) has adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments. Overview of the Financial Statements The Foundation s annual report consists of the Management s Discussion and Analysis (MD&A), which provides a broad narrative overview of its financial activities for the fiscal years ended and 2013, and the following, which comprise the basic financial statements: 1. Statement of Net Position 2. Statement of Revenues, Expenses and Changes in Net Position 3. Statement of Cash Flows 4. Notes to Financial Statements The financial statements give an overall picture of the Foundation s financial situation and should be read in conjunction with the MD&A. The statement of net position of the Foundation provides both long term and shortterm information about the Foundation's overall financial status. The statement of revenues, expenses and changes in net position provides information about the operating revenues and expenses and the non operating revenues of the Foundation. The statement of cash flows provides information about the sources and uses of cash by the Foundation. The notes to financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. 5

8 MANAGEMENT S DISCUSSION AND ANALYSIS Condensed Financial Information Statement of Net Position Current Assets $ 450,208 1,349,940 Noncurrent Assets 12,853,188 11,002,656 Total assets 13,303,396 12,352,596 Current Liabilities 180, ,407 Noncurrent Liabilities 2,780,048 2,649,971 Total liabilities 2,960,279 2,827,378 Net Position Net investment in capital assets 5,220,511 4,434,943 Unrestricted 698, ,060 Restricted, expendable 565,136 2,496,090 Restricted, unexpendable 3,858,569 2,467,125 $ 10,343,117 9,525,218 Statements of Revenue, Expenses, and Changes in Net Position Operating revenue Contributions $ 885,657 1,679,500 Lease income from the University 372, ,994 Total operating revenue 1,258,042 2,058,494 Operating expenses Student aid grants and stipends 250, ,476 Operating expenses 328, ,039 Other expenditures 689, ,386 Total operating expenses 1,268,824 1,628,901 Operating (loss) income (10,782) 429,593 Investment income and contributions to endowment 828, ,580 Change in net position 817,899 1,112,173 Net position, beginning of year 9,525,218 8,413,045 Restatement Net position, as restated 9,525,218 8,413,045 Net position, end of year $ 10,343,117 9,525,218 6

9 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis The statement of net position discloses information on assets, liabilities, and net position. The Foundation's total assets at of $13,303,396 exceeded total liabilities of $2,960,279, yielding total net position of $10,343,117. The total net position showed an increase of approximately 8.6% for the 2014 fiscal year. The primary factor contributing to this net increase is an increase in contributions to certain endowments and additions to artwork. The Foundation s total assets at June 30, 2013 of $12,352,596 exceeded total liabilities of $2,827,378, yielding total net position of $9,525,218. Total net position showed an increase of approximately 13% for the 2013 fiscal year. The primary factor contributing to this increase is an increase in contributions to certain endowments. Liabilities increased from $2,827,378 at June 30, 2013 to $2,960,279 at primarily due to increases on its note payable for its Rio Rancho building. At, the major portion of the Foundation's assets is its investments (49%) followed by building held for lease to the University at (28%) and cash (20%). The net increase in fair value of investments for fiscal year 2014 amounted to $667,126. Total operating revenues of $1,258,042 were recorded at. Nonoperating revenues were $667,126. Total revenues decreased 16% from the prior year, largely due to the increase in donations and investment income. Total operating expenses for fiscal year 2014 were $1,268,824, which represented a 22% decrease in spending from the prior year. These increases were primarily due to an increase in awarded scholarships. Budgetary Highlights None. The Foundation does not have a legally adopted budget and therefore does not include budget information herein. Capital Assets and Debt Administration Capital assets are composed of land and a building held for lease to the University and artwork. Capital assets, net of accumulated depreciation were $6,374,666 and $5,715,067 at and 2013, respectively. Debt consisted of a note payable on the above land and building. Debt of $1,154,156 and $1,280,124 was recorded at and 2013, respectively. 7

10 MANAGEMENT S DISCUSSION AND ANALYSIS Factors Impacting Future Periods None Contacting New Mexico Highland University Foundation's Financial Management If you have questions about this report or need additional information, contact New Mexico Highlands University Foundation at Box 9000, Las Vegas, New Mexico

11 STATEMENT OF NET POSITION ASSETS Current Assets Cash and cash equivalents $ 310,219 Receivables 136,886 Prepaid assets 3,103 Total current assets 450,208 Noncurrent Assets Investments 6,478,521 Capital Assets Artwork 2,637,765 Building and Land 3,736,902 Total noncurrent assets 12,853,188 Total assets $ 13,303,396 LIABILITIES AND NET POSITION Current Liabilities Accounts payable and accrued liabilities $ 21,301 Notes payable current portion 157,590 Accrued interest payable 1,340 Total current liabilities 180,231 Noncurrent Liabilities Assets held for others 1,783,482 Notes payable long term portion 996,566 Total noncurrent liabilities 2,780,048 Total liabilities 2,960,279 Net Position Net investment in capital assets 5,220,511 Unrestricted 698,901 Restricted, expendable 565,136 Restricted, unexpendable 3,858,569 Total net position 10,343,117 Total liabilities and net position $ 13,303,396 See Notes to Financial Statements. 9

12 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Year Ended Operating Revenues Contributions $ 885,657 Lease income from University 372,385 Total operating revenues 1,258,042 Operating Expenses Student aid grants and stipends 250,509 University support 631,755 Operating expenses 328,862 Depreciation 57,698 Total operating expenses 1,268,824 Operating loss (10,782) Nonoperating Revenues Investment income, net 667,126 Income before additions to permanent endowments 656,344 Additions to Permanent Endowments 161,555 Increase in net position 817,899 Net position, beginning of year 9,525,218 Net position, end of year $ 10,343,117 See Notes to Financial Statements. 10

13 STATEMENT OF CASH FLOWS Years Ended Cash Flows From Operating Activities Cash received from donors $ 876,357 Other cash receipts 372,385 Cash paid to beneficiaries and vendors (973,617) Net cash provided by operating activities 275,125 Cash Flows From Investing Activities Purchase of investments $ (1,000,877) Proceeds from sales of investments 477,071 Purchase of property, furniture and equipment (676,898) Net cash used by operating activities (1,200,704) Cash Flows from noncapital financing activities Cash received from donors 161,555 Cash Flows From Capital and Related Financing Activities Principal payments on notes payable (158,242) Proceeds from debt 32,274 Net cash used by financing activities (125,968) Net decrease in cash and cash equivalents (889,992) Cash and cash equivalents at beginning of year 1,200,211 Cash and cash equivalents at end of year $ 310,219 Cash Flows From Operating Activities Operating loss $ (10,782) Adjustments to reconcile operating income to net cash used by operating activities Contributed artwork (40,400) Depreciation 57,698 Receivables 9,740 Accounts payable and accrued liabilities (3,284) Accrued interest payable (145) Assets held for other 262,298 Net cash provided by operating activities $ 275,125 Supplemental Schedule of non cash investing and financing activities Increase in note payable for land acquisition $ 32,274 Unrealized gain on investments 667,126 See Notes to Financial Statements. 11

14 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Activities. New Mexico Highlands University Foundation (Foundation) is formed to encourage, solicit, receive, and administer gifts and bequests of real and personal property and funds for scientific, educational, public service, and charitable purposes for the advancement and benefit of New Mexico Highlands University and its objectives and, to that end (a) to take and to hold, either absolutely or in trust for any limitations and conditions imposed by law or the instrument under which received; (b) to sell, lease, convey, and dispose of any such property, to invest and re invest any proceeds and other funds, and to deal with and expend the principal and income for any purpose herein authorized; (c) to act as trustee; and (d) in general, to exercise any, all, and every power, including trust powers, which a non profit organized under the laws of New Mexico for the foregoing purposes can be authorized to exercise. Under the Memorandum of Agreement with the University, the University will (1) assign staff to service the administrative needs of the Foundation; (2) provide liability insurance for the Foundation's officers and Board members; (3) provide suitable office and meeting space; (4) pay the cost of reasonable utilities, maintenance and repairs, property insurance, and any other reasonable physical facility support services; (5) provide certain reasonable administration support services; and (6) provide, at no cost to the Foundation, reasonable information technology processing and support, including acquisition of appropriate hardware and software. The Foundation meets the criteria under Governmental Accounting Standards Board (GASB) No. 39 and No. 61 to qualify as a component unit of the New Mexico Highlands University. The Foundation s financial statements are discretely presented in the New Mexico Highlands University audit report. The Foundation has no component units. Measurement Focus, Basis of Accounting, and Financial Statement Presentation. As a component unit of New Mexico Highlands University, the Foundation prepared its financial statements in accordance with the accounting disclosure and reporting requirements under Governmental Accounting Standards Board (GASB) pronouncements, as the Foundation meets the criteria of a governmental entity. The Foundation has no component units, related organizations, joint ventures, or jointly governed organizations. The Foundation's financial statements are reported using a flow of economic resources measurement focus and the full accrual basis of accounting. Accordingly, revenues are recognized when they are earned and expenses are recognized as soon as the liability is incurred. 12

15 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents. The Foundation considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. Allowance for Doubtful Accounts. The Foundation uses the direct write off method in recognizing uncollectible pledges receivable. Under this method, pledges are charged to operations when they are deemed by management to be uncollectible. Investments. The investments policy allows the Foundation to invest its portfolio in equities, fixed income, and other investment strategies to maintain sufficient liquidity to meet projected (or budgeted) distribution requirements. Capital Assets. Capital assets used in the Foundation s operations are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. Renovations to buildings, infrastructure, and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. The Foundation does capitalize historical treasures or works of art. The Foundation does not currently have any capital assets used in its operations. However, the Foundation does have a Building Held for Lease to the University. The Foundation s accounting policy over the building held for lease follows the same policy as the above capital assets policy. Depreciation is computed using the straight line method over the estimated useful lives of the assets, generally 39 years for buildings and 5 to 12 years for furniture, fixtures, and equipment. Classification of Revenues. The Foundation has classified its revenues as either operating or nonoperating according to the following criteria: Operating Revenues. Operating revenues include activities that have the characteristics of exchange transactions such as unrestricted donations. Revenue on contracts and grants are recognized to the extent that the underlying exchange transaction has occurred. 13

16 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Nonoperating Revenues. Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions and other revenue sources that are defined as nonoperating revenues by GASB Statement No. 9 Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34, such as investment income. Gifts and contributions are recognized when all applicable eligibility requirements have been met. When both restricted and unrestricted resources are available for use, generally it is the Foundation s policy to use the restricted resources first. Contributions of donated noncash assets are recorded at their fair values in the period received. Contributions of donated services that create or enhance nonfinancial assets or that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation are recorded as University support in the accompanying financial statements. Contributed Facilities and Services. Contributed Facilities and Services represent the estimated fair rental value of office space and general corporate services provided. Contributed facilities are provided on a month to month basis. Contributed services are recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills that are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Contributed services are recorded as in kind expense, and are included with University support in the accompanying financial statements. Endowments. The endowment spending policy is in alignment with the long term endowment management philosophy of the Foundation, which is to preserve the permanent viability of the endowment. The Foundation supports vital scholarship and other programs from earning of its endowment. These programs are in concert with provisions established by donors of the endowment. Net appreciation/depreciation on donor restricted endowments and related investment income are recorded as an increase in restricted, expendable net position until the amount is expended in accordance with donor specifications and in accordance with the State of New Mexico Uniform Management of Institutional Funds Act (Chapter 46, Article 9, NMSA 1978). 14

17 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Income Taxes. The Foundation is a non profit organization as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes. Net Position. The Foundation s net position is classified as follows: Net investment in Capital Assets. This represents the Foundation s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets. Restricted Net Position Nonexpendable. Nonexpendable restricted net position consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. Restricted Net Position Expendable. Expendable restricted net position is resources that the Foundation s is legally or contractually obligated to spend in accordance with imposed restrictions by third parties. Unrestricted Net Position. Unrestricted net position represent resources derived from unrestricted gifts and lease income from the University, net of expenses. These resources may be used at the discretion of the governing board to meet current expenses for any purpose. Under the reporting required by the Financial Accounting Standards Board (FASB), unrestricted equity includes the amounts invested in capital assets, net of related debt. As the Foundation follows GASB, the net investment in capital assets is reported separately. 15

18 NOTES TO FINANCIAL STATEMENTS NOTE 2. CASH AND CASH EQUIVALENTS As of, cash and cash equivalents recorded in the Foundation s financial statements were as follows: Cash and cash equivalents $ 310,219 Cash and cash equivalents at bank 329,752 Reconciling items (19,533) Cash and cash equivalents recorded in financial statements $ 310,219 Custodial credit risk is the risk that in the event of a bank failure, the Foundation's deposits may not be returned to it. The Foundation does not have a policy for custodial credit risk. The Foundation is not required to follow state statutes requiring pledged collateral, and therefore no collateralization is required. As of, none of the Foundation s bank balance was exposed to uncollateralized and uninsured amounts. All of the Foundations bank balances are held by Community 1 st Bank in Las Vegas, New Mexico. NOTE 3. INVESTMENTS At, investments of the Foundation are summarized as follows: Cash and money market funds $ 190,777 Certificates of deposit 1,003,172 Mutual funds 205,124 Unsettled transactions 46 Preferred stock 18,848 Common stock 4,118,030 U.S. obligations 328,612 U.S. agency obligations 94,064 U.S. corporate bonds 519,848 Total investments $ 6,478,521 Interest Rate Risk. As of, the Foundation had the following investments subject to interest rate risk: Weighted Average Maturity Investment Type Fair Value (years) U.S. obligations $ 328, U.S. agency obligations 94, U.S. corporate bonds 519, $ 942,524 16

19 NOTES TO FINANCIAL STATEMENTS NOTE 3. INVESTMENTS (CONTINUED) The Foundation does not have a provision in its formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk. As of, the following investments are subject to credit risk: U.S. Corporate Bonds: Rating Fair Value A $ 340,644 B 179,204 $ 519,848 U.S. Agency Obligations: Rating Fair Value BAA1/BBB $ 94,064 The Foundation has an investment policy that requires an allocation percentage of a maximum of 75% of the funds, will be invested, and a minimum of 35% in both equities and fixed income securities. All of the Foundation s investments, except its certificates of deposit, are held by Morgan Stanley. Community 1 st Bank holds the Foundation s certificates of deposit. NOTE 4. ASSETS HELD FOR OTHERS As of, assets held for the University consist of University Endowments in the amount of $1,783,

20 NOTES TO FINANCIAL STATEMENTS NOTE 5. CAPITAL ASSETS Balance June 30, 2013 Additions Retirements Balance Capital assets not being depreciated Land $ 1,732, ,899 2,409,841 Artwork 2,597,365 40,400 2,637,765 4,330, ,299 5,047,606 Other capital assets Buildings held for lease to University 2,250,237 2,250,237 Accumulated depreciation for Buildings (865,478) (57,698) (923,176) Capital assets, net $ 5,715, ,600 6,374,666 Capital assets summary Capital assets not being Depreciated 4,330,307 $ 717,299 5,047,606 Other capital assets, at cost 2,250,237 2,250,237 Total cost of capital assets 6,580, ,299 7,297,843 Accumulated depreciation (865,477) (57,698) (923,175) Capital assets, net $ 5,715, ,600 6,374,667 Depreciation expense for the year totaled $57,698. NOTE 6. LONG TERM LIABILITIES Long term liability activity for the year ended, is as follows: Balance Balance Amount Due June 30, 2013 Additions Deletions Within One Year Notes Payable $ 1,280,124 32,274 (158,243) 1,154, ,590 18

21 NOTES TO FINANCIAL STATEMENTS NOTE 7. NOTE PAYABLE The Foundation has a note payable to a national bank which was used to pay off existing real property and indebtedness. Seven year note payable Amount Due October 21, 2021, with monthly payments of $17,326 at a 4% fixed interest rate. The note is secured with building and land. $ 1,154,156 Current portion (157,590) Total long term portion $ 996,566 Debt service requirements for future fiscal years are as follows: Year Amount 2015 $ 157, , , , ,289 Thereafter $ 298,480 1,154,156 NOTE 8. LEASE WITH NEW MEXICO HIGHLANDS UNIVERSITY The Foundation leases a building it owns in Rio Rancho, New Mexico to New Mexico Highlands University. The Foundation entered into a twenty year lease agreement on January 30, Lease income for the year ended, was $372,385. Rental income per month was $31,032 for the year ended. 19

22 REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Directors New Mexico Highlands University Foundation And Mr. Hector Balderas, New Mexico State Auditor We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of New Mexico Highlands University Foundation (Foundation) (a component unit of New Mexico Highlands University) as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Foundation s basic financial statements, and have issued our report thereon dated November 3, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Foundation s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not 20

23 Board of Directors New Mexico Highlands University Foundation And Mr. Hector Balderas, New Mexico State Auditor identify any deficiencies in internal control that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and responses as items that we consider to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Foundation s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Foundation s Responses to the Findings The Foundation s responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. The Foundation s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Albuquerque, New Mexico November 3,

24 SUMMARY SCHEDULE OF PRIOR FINDINGS None 22

25 SCHEDULE OF FINDINGS AND RESPONSES Financial Close and Reporting (Significant Deficiency) Condition During the current year, there were approximately 6 journal entries after the final trial balance was provided to the auditors, some of which were significant dollar amounts, and accumulated to over $3 million dollars in total. Criteria For the year end financial close and reporting process to function well, accounts need to be adjusted timely, including a process to ensure that unusual transactions are recorded properly, timely and in accordance with Generally Accepted Accounting Principles. Effect Without timely reporting of transactions, there is an increased risk of error or fraud in the financial records. Cause The Foundation has not had adequate resources to develop well established policies and procedures over financial close and reporting. Additionally, the Foundation has limited staffing resources to complete timely journal entries. Recommendation We recommend that the Foundation continue to develop policies and procedures to outline the requirements, timelines and responsibilities over the financial control and reporting process, obtain the necessary staffing to carry this out. Management Response The journal entries that were processed after the initial Trial Balance was provided to the auditors were due to the fact that I was unsure how to handle some unusual entries and needed assistance from the auditors to assure that they were processed correctly. 23

26 EXIT CONFERENCE Year Ended The contents of this report were discussed in an exit conference held on November 3, Representing New Mexico Highlands University Foundation: Mr. Will Wootton, Foundation Executive Director Representing Moss Adams LLP: Lisa Todd, Partner The financial statements were prepared with the assistance of Moss Adams LLP from the books and records of the New Mexico Highlands University Foundation. 24